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Amazon Kindle Fire Costs $201.70 to Build, Below Cost: IHS

Amazon's Kindle Fire costs $201.70 to manufacture, including materials, placing its costs above its price, according to research firm IHS.

Amazon's Kindle Fire costs $201.70 to manufacture, according to a preliminary finding by research firm IHS' Teardown Analysis Service. That number combines manufacturing costs with the preliminary Bill of Materials (BOM), which totals $185.60.

Those materials include a Texas Instruments 1GHz dual-core ARM Cortex-A9 processor ($14.65, or 7.9 percent of the BOM), and the display with E Ink's FFS technology ($87, or 46.9 percent of the BOM). In addition, the device includes 8GB of eMMC NAND flash memory and 4GB of DDR DRAM memory supplied by Elipida (for the device torn down by the firm).

Given the Kindle Fire's price-point of $199, if IHS' analysis holds, that means Amazon sells each unit at a slight but noticeable loss. That mirrors the online retailer's strategy with the original grayscale Kindle, which IHS suggests also retails at a price point below cost.

"Amazon makes it money not on Kindle hardware, but on the paid content and other products it plans to sell the consumer through the Kindle," Andrew Rassweiler, senior director of IHS' teardown services, wrote in a Nov. 18 research note. "This is a similar business model to wireless companies such as AT&T or Verizon. They sell you a phone that costs them $400 to $600 or more to make for a price of only $200. However, they expect to more than make up for that loss with a two-year service contract."

Further reading

The Kindle Fire's price point significantly undercuts that of other tablets on the market, including Apple's iPad and the Samsung Galaxy Tab line. That being said, the Fire also bears significant differences from those rival tablets: in place of the others' grid-like screens of individual apps, for instance, its user interface centers on a set of virtual "shelves" lined with the user's media and apps. In addition, the Fire boasts a tight integration with Amazon's online storefronts, essentially rendering it more of a vending machine for streaming media than a full-fledged tablet for both consumers and businesses.

"What we really built is a fully integrated media service," Amazon CEO Jeff Bezos told Wired Nov. 13. "Hardware is a crucial ingredient in the service, but it's only a piece of it."

Amazon faces competition from not only the iPad and other "conventional" tablets, but also Barnes & Noble's new Nook Tablet, which the bookseller is pushing as an e-reader and media viewer. Unlike Amazon, Barnes & Noble relies on partnerships with companies such as Netflix to provide access to multimedia.